FOR the second consecutive year, passively managed index-tracker funds topped the best-performing unit trust list as surveyed by ProfileData in 2012.
The results again raise the question of whether paying managers to actively manage unit trusts is such a smart idea when one can get better returns at relatively cheap prices.
The top-performing unit trusts for the year ended December were the Newfunds eRAFI SA 15 Fin Index with a barnstorming 44.58% return, followed by the Satrix Indi-A, which returned 43.91%.
The worst-performing unit trust for the year was Old Mutual Gold with its 14.11% loss, followed by Stanlib Gold and Precious Metals, which lost 6.81%.
The performance by the index trackers reveals the relative outperformance of the industrial sector compared with property and resources. However, one may ask why there were no unit trusts exposed to the industrial sector topping the list, or no resource sector exchange-traded gold trackers at the bottom of the pile.
Over the past year, the worst-performing unit trusts were those exposed to the battered resources sector. But this put them in pole position for outperformance in the future, said Peter Major, mining industry consultant at Cadiz Corporate Services.
"The Resi [resource index] is trading at over 50-year lows relative to the Indi [industrial index] on a price-to-earnings basis. In the past three years the Resi has returned 12%, -7% and 0%, while its long-term average was 19%. In contrast, over the past three years the Indi has returned 27%, 11% and 43%. Its long-term average a year is 18%. So my money is on the Resi in 2013, big time," Major said.
Dawie Klopper, an economist at PSG Konsult, said portfolio managers would be compelled to change their strategy if index trackers continued to show a strong performance - or if it became apparent these products were clearly superior to letting a manager pick one's stocks.
"Perhaps a new strategy for us as financial advisers would be to pick an ETF [exchange-traded fund] as a core of the portfolio, while using specialist and actively managed funds as satellites.
"We're currently invested with actively managed unit trusts. If this trend continues, we might have to change our strategy. However, we have to recognise that one would still have to choose which sector to track, so there is still an element of active management."
According to Mike Brown of ETF.co.za, 2012 reflects a year in which the performance of many sectors of the JSE exceeded expectations. The JSE all-share index showed a total return (with dividends reinvested) of 26.68% for 2012. Some other JSE-tracking indices did even better than this.
A total of 16 exchange-traded products and unit trust index trackers beat the All Share index in 2012. Nine index-tracking funds (from a smaller pool of funds) outperformed the All Share index over the past three years.
Now that tracker funds cover many different asset classes, sectors and markets, they can provide market-beating performance.
*This article was first published in Sunday Times: Money & Careers